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Comparative Advantage and the Welfare Impact of European Integration

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  • Andrei A. Levchenko
  • Jing Zhang

Abstract

This paper investigates the welfare gains from European trade integration, and the role of comparative advantage in determining the magnitude of those gains. We use a multisector Ricardian model implemented on 79 countries, and compare welfare in the 2000s to a counterfactual scenario in which East European countries are closed to trade. For West European countries, the mean welfare gain from trade integration with Eastern Europe is 0.16%, rang- ing from zero for Portugal to 0.4% for Austria. For East European countries, gains from trade are 9.23% at the mean, ranging from 2.85% for Russia to 20% for Estonia. For Eastern Europe, comparative advantage is a key determinant of the variation in the welfare gains: countries whose comparative advantage is most similar to Western Europe tend to gain less, while countries with technology most different from Western Europe gain the most.

Suggested Citation

  • Andrei A. Levchenko & Jing Zhang, 2012. "Comparative Advantage and the Welfare Impact of European Integration," NBER Working Papers 18061, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:18061
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    1. repec:wsi:wschap:9789814719902_0010 is not listed on IDEAS
    2. Marcel P. Timmer & Bart Los & Robert Stehrer & Gaaitzen J. Vries, 2013. "Fragmentation, incomes and jobs: an analysis of European competitiveness," Economic Policy, CEPR;CES;MSH, vol. 28(76), pages 613-661, October.
    3. Los, Bart & Timmer, Marcel P. & de Vries, Gaaitzen J., 2015. "How important are exports for job growth in China? A demand side analysis," Journal of Comparative Economics, Elsevier, vol. 43(1), pages 19-32.
    4. Francesc Ortega & Giovanni Peri, 2012. "The Effect of Trade and Migration on Income," Working Papers 1213, University of California, Davis, Department of Economics.
    5. Marcel Henkel & Tobias Seidel, 2016. "A Spatial Perspective on European Integration: Heterogeneous Welfare and Migration Effects from the Single Market and the Brexit," CESifo Working Paper Series 6289, CESifo Group Munich.
    6. Francesc Ortega & Giovanni Peri, 2016. "Openness and income: The roles of trade and migration," World Scientific Book Chapters,in: The Economics of International Migration, chapter 10, pages 309-329 World Scientific Publishing Co. Pte. Ltd..
    7. Peter Egger & Sergey K. Nigai, 2016. "World-Trade Growth Accounting," CESifo Working Paper Series 5831, CESifo Group Munich.
    8. Elizaveta Archanskaia, 2013. "Proximity as a Source of Comparative Advantage," Working Papers hal-01070440, HAL.
    9. Levchenko, Andrei A. & Zhang, Jing, 2014. "Ricardian productivity differences and the gains from trade," European Economic Review, Elsevier, vol. 65(C), pages 45-65.
    10. Elizaveta Archanskaia, 2013. "Proximity as a Source of Comparative Advantage," Sciences Po Economics Discussion Papers 2013-05, Sciences Po Departement of Economics.
    11. Luigi Bonatti & Andrea Fracasso, 2013. "The German Model and the European Crisis," Journal of Common Market Studies, Wiley Blackwell, vol. 51(6), pages 1023-1039, November.
    12. Badi H. Baltagi & Peter Egger & Michael Pfaffermayr, 2014. "Panel Data Gravity Models of International Trade," CESifo Working Paper Series 4616, CESifo Group Munich.
    13. Nuno Limão, 2016. "Preferential Trade Agreements," NBER Working Papers 22138, National Bureau of Economic Research, Inc.
    14. Ortega, Francesc & Peri, Giovanni, 2013. "Migration, Trade and Income," IZA Discussion Papers 7325, Institute for the Study of Labor (IZA).

    More about this item

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration

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